I have always been troubled by the term performance management (PM) but for years had not really taken the time to explore why it troubled me. Recently, I took the time; I started my exploration by reviewing the related content in the Baldrige Criteria for Performance Excellence (particularly the organizational assessment questions at 5.2a within the 2017-2018 Baldrige Excellence Framework booklets). After some additional reading on performance management, I realized that my concern stemmed from the dual nature of this question in the Baldrige Criteria (that mirrors our general approach to performance management): “How does your workforce performance management system support high performance and workforce engagement?” I also noted that the bulleted Criteria requirements associated with this question all deal with accomplishing the work of the organization, and none relate to the engagement of employees from the perspective of their personal development, a major motivator of engagement. Furthermore, as I read related literature, I saw that most references make the assumption that employees’ understanding of their role and contribution with respect to the work of the organization is the main driver of their engagement. I eventually concluded that we really need to talk about a performance culture (PC) that is achieved through performance management (PM) and personal performance development (P²D): PC = PM + P²D!
That’s it; my insight for the season in one paragraph. However, I didn’t get to this insight quickly, so I will share some of the background. I will start with some history; then share some definitions from the literature, data about performance, and comments on today’s realities; and finally speculate a bit about the future.
In the April 2015 issue of Harvard Business Review, Marcus Buckingham and Ashley Goodall ask the profound question, “Is performance management at root more about ‘management’ or about ‘performance’?” In other words, is it about measuring the performance of your people today, or might it be better to measure their potential to improve performance tomorrow? The latter benefits the organization and the person, particularly if the employee is developing in an area of personal interest or strength. A win-win outcome!
History tells us performance management leans heavily toward the “management” dimension. According to Peter Cappelli and Anna Tavis in their October 2016 article in Harvard Business Review, performance management began over 70 years ago at the time of World War II when the U.S. Army devised a system for forced ranking of enlisted soldiers to determine those with potential to become officers. In the 1940s, about 60 percent of U.S. companies were using appraisals to document workers’ performance and allocate rewards. We were all about managing worker performance, and we rewarded good performance with financial benefits. In the 1980s, Jack Welch became famous for the forced ranking of General Electric employees under his leadership, which rewarded top performers, accepted those ranked as middle performers, and got rid of the bottom performers (every year). I believe this notoriety and process is at the crux of where many organizations got “stuck” in workforce performance management. Sure, not all organizations took an approach as Machiavellian as GE, but the concept was golden.
In the 1990s, McKinsey’s “War for Talent” study revealed a shortage of capable executives and emphasized the importance of assessing and rewarding performance. By the early 2000s, organizations were using performance appraisals (note the subtle conflation with performance management) mainly to hold employees accountable and as a basis for rewarding good performers. An estimated 60 percent of Fortune 500 companies had adopted forced-ranking systems for employees.
By 2005, organizations were becoming flatter, meaning that supervisors had to rate many more employees. In 2005, a few years after Jack Welch left GE, the company realized that the forced ranking of employees fostered severe internal competition and “sabotaged” teamwork and collaboration. Also by 2005, money for employee salary increases and bonuses was tight. Many employees hated the performance appraisal system, which usually focused on a backward-looking review of performance and emphasized shortcomings and opportunities to improve based on that past performance. Furthermore, many supervisors hated doing the reviews, and a CEB study reported that the average manager spent 210 hours a year (more than five work-weeks) doing performance reviews.
With the groundswell of dissatisfaction and a changing landscape, organizations began to realize that a change was needed and that cascading goals from the top down and annually measuring individual employee performance on that basis were no longer ideal. Furthermore, team-based work conflicted with individual performance appraisals. In 2011, Adobe led U.S. organizations in departing from annual reviews as it moved to provide more frequent project reviews and individual feedback for its employees. In the same year, Kelly Services was the first professional services firm to do the same.
According to Cappelli and Tavis, three reasons were driving this shift to more frequent reviews: the importance of teamwork, the need for agility, and a tightened labor market that led organizations to include personal development as a component of performance management.
Why is there so much confusion about performance management and employee engagement? Let’s look at some definitions. The basic definition of performance management is simply articulated in an article by PeopleStreme as “an ongoing process for establishing a shared workforce understanding about what is to be achieved at an organizational level.” The article states that employee performance management is about aligning organizational objectives with the employees’ agreed-to measures, skills, competencies, delivery of results, and their development plans. The employee engagement piece comes at the very end as almost an afterthought in discussing performance management.
In a SHRM Viewpoint article, Amber Lloyd defines performance development as “feedback on how to grow in the organization, opportunities to play a key role, and learning both internal and external to the organization.” She states that the best place to start is by developing leaders who are then able to engage, develop, and ultimately retain employees. Lloyd also states that organizations need to build a performance management process that aligns with organizational culture. They need an HR strategy that supports that organization’s culture and its overarching business strategy. Employees want to visualize their career path, and managers need to consider developing their employees rather than just giving them feedback.
While learning is a key component of this description of performance development, it is still an organization-centric view. Although this is vital to the organization (and employee), I don’t think it fully values the employee. Hence my choice to add the “personal” touch to personal performance development (P²D) to give weight to the development that fully engages the employee.
The result of these considerations is what I choose to call a performance culture. I define this as “an organizational culture and bias toward realizing organizational goals through clear involvement and goal-setting participation by the workforce, achieved through engaging work assignments, opportunities, and personal learning to reach the next level of organizational and personal performance.”
This dual focus on PM and P²D to achieve a performance culture is, I believe, the key to attracting and retaining a high-performance workforce in a time of declining unemployment, increasing demand for skilled employees, and the need for organizational agility. The goal is improved organizational performance and fully engaged (hands, heart, and intellect) employees. Let me share some data to bolster this dual focus.
Data about Performance
In a recent Gallup European survey, employees were asked if they believe they have opportunities to learn and grow within their current company. In Germany, 33 percent of survey respondents strongly agreed and 60 percent either agreed or strongly agreed that they have such opportunities. That was the high-water mark. In the United Kingdom, only 14 percent strongly agreed and 32 percent agreed or strongly agreed. The survey also found that two-thirds of the employees are potentially looking to leave their current company—not a good indicator for organizational performance or employee growth and development.
In a 2017 Gallup report by Bryant Ott, employees were asked what they need from their managers. Their responses revealed they need four things:
- Job clarity and priorities
- Ongoing feedback and communication
- Opportunities to learn and grow
All four of these employee requirements should be addressed as part of creating a performance culture. But the survey results related to these requirements are disappointing:
- Only 30 percent of employees strongly agreed they were involved in goal setting.
- Only 27 percent strongly agreed that they receive feedback that helps them do a better job.
- Only 19 percent strongly agreed they talked to their manager about reaching their goals.
- Only 40 percent strongly agreed that their manager holds them accountable for their performance goals.
- Only 22 percent strongly agreed that their performance is managed in a way that motivates them.
Employees who strongly agree that they are held accountable for their performance goals are 2.5 times more likely to be engaged. Employees who strongly agree that their manager has talked to them in the last six months about reaching their goals are 3.5 times more likely to be engaged.
In addition, in a recent article on how to create a more effective performance management program, Chris Lennon reports that two-thirds of companies are shifting from traditional performance management to an emphasis on developing employees and providing continuous feedback. This change stems from an Institute for Corporate Productivity study that found that 67 percent of 244 companies surveyed were rethinking their performance management practices, driven largely by (1) feedback from employees (59%); (2) a mandate from the C-suite (47%); and (3) a need for improved business results (47%).
Employees don’t start their careers wanting to fail. Organizations want to be successful in their marketplace. In a June 2018 Government Executive blog, Howard Risher reports that all the identified “best places to work” provide a positive, challenging work environment where people are willing to commit to surprisingly high levels of performance. At these places, everyone needs and benefits from ongoing training. Reports on millennials show training is a priority in their job searches.
Organizations today need employees who are versatile and who can continually upgrade their work skills. High-performing organizations address this need by meeting employees’ rising expectations for career-relevant learning and development, according to Gallup.
The Future: PC = PM + P²D
Let’s consider again the question posed by Buckingham and Goodall above:
Is performance management at root more about "management" or "performance"?
Here is the question I believe we now should be asking (and that organizations need to be addressing in their processes):
Is an equal mix of performance management (that benefits organizational performance) and employee personal development (that benefits employee engagement and enrichment) the root of a performance culture that can sustain organizations in the 21st century?
Finally, how should we reward employee performance in this new environment? I would suggest that future rewards be based on a combination of organizational, team, and individual performance, built on a culture of learning for all. If you are part of an organization that is already using a process that reflects this concept, please let me know. I would be eager to write about it in a future blog!